2009-12-03Calculated Risk Blog
“In the week ending Nov. 28, the advance figure for seasonally adjusted initial claims was 457,000, a decrease of 5,000 from the previous week’s revised figure of 462,000 [revised from 466,000]. The 4-week moving average was 481,250, a decrease of 14,250 from the previous week’s revised average of 495,500.
…
The advance number for seasonally adjusted insured unemployment during the week ending Nov. 21 was 5,465,000, an increase of 28,000 from the preceding week’s revised level of 5,437,000. The 4-week moving average was 5,541,500, a decrease of 75,750 from the preceding week’s revised average of 5,617,250.”
2009-11-27-09 ZeroHedge.com
“Overall, many participants viewed the risks to their inflation outlooks over the next few quarters as being roughly balanced. Some saw the risks as tilted to the downside in the near term, reflecting the quite elevated level of economic slack and the possibility that inflation expectations could begin to decline in response to the low level of actual inflation. But others felt that risks were tilted to the upside over a longer horizon, because of the possibility that inflation expectations could rise as a result of the public’s concerns about extraordinary monetary policy stimulus and large federal budget deficits. Moreover, these participants noted that banks might seek to reduce appreciably their excess reserves as the economy improves by purchasing securities or by easing credit standards and expanding their lending substantially. Such a development, if not offset by Federal Reserve actions, could give additional impetus to spending and, potentially, to actual and expected inflation. To keep inflation expectations anchored, all participants agreed that it was important for policy to be responsive to changes in the economic outlook and for the Federal Reserve to continue to clearly communicate its ability and intent to begin withdrawing monetary policy accommodation at the appropriate time and pace.”
2009-11-30 Bloomberg.com
Nov. 27 (Bloomberg) — The worldwide decline in equities spurred by Dubai’s efforts to reschedule its debt is a sign that government spending alone won’t be enough to protect financial markets, according to Arnab Das of Roubini Global Economics.
Stock volatility will probably jump as countries and companies default on loans, said Das, the head of market research and strategy at RGE, the advisory firm founded by economist Nouriel Roubini.
Shares slumped from Shanghai to Brazil and European shares fell the most in seven months yesterday after Dubai World, the government investment company burdened by $59 billion of liabilities, sought to delay repayment on much of its debt. Governments have spent, lent or guaranteed $11.6 trillion and central banks held interest rates near zero percent to end the first global recession since World War II.
“We’re bound to see a rise in risk aversion,” Das, who is based in London, said in an interview. “The Dubai situation signifies that although the major central banks around the world have stabilized the financial system, they can’t make all the excesses simply disappear. We still have to work out those balance sheet stresses. The recovery is proceeding, but significant challenges still lie ahead.”
1009-11-29 Mish’s Global Economic Blog
Global stock markets endured heavy selling on Thursday as investors were spooked by the spectre of a default by Dubai and after a febrile foreign exchange market saw the yen surge to a 14-year high against the dollar.
The turmoil caused a flight to less risky assets. Gold, which had challenged $1,200 in Asian trading, fell back from its highs and money flowed into havens such as German government bonds.
US markets are closed for the Thanksgiving holiday, but electronic trading of the benchmark S&P 500 equity futures contract showed a potential drop on Wall Street of 2.2 per cent.
As the European trading day progressed it became clear it was Dubai World’s difficulties that had hit a particular nerve, reminding investors of the lingering damage wrought by the financial crisis.
2009-11-28 Mish’s Global Economic Blog
“If there is no clear, easy way out for housing, then there is no clear, easy way out for Wells Fargo. Wells is sitting in a huge pile of Pay Option Arms in bubble states like California, where prices still have a long way to correct.”
2009-11-24 Housingwire.com
“Banks and savings institutions insured by the Federal Deposit Insurance Corp. (FDIC) posted aggregate net income of $2.8bn in Q309 despite net quarterly losses reported by more than 26% of all insured institutions, according to the FDIC’s quarterly report on insured institutions.”
2009-11-16 — bloomberg.com
“The options market shows investors are growing increasingly wary that U.S. debt sales may push yields higher even as inflation remains in check.”
2009-11-16 — heraldtribune.com
“The FBI recently added short sale flipping, dubbed “flopping” by some mortgage fraud experts, to its list of recognized real estate fraud.”
2009-11-16 — reuters.com
“Investors who reaped robust gains in U.S. mortgage-backed securities by piggy-backing on the Federal Reserve’s $1.25 trillion buying program are bracing for the end to the central bank’s support — and positioning themselves for a new round of profits as prices cheapen.”
2009-11-14 Bloomberg.com
Ambac Financial Group Inc.’s bond- insurance unit faces a 99 percent chance of default, credit derivatives show, as financial institutions brace for the second-largest bond insurer to file a capital update with regulators later today. ”
2009-09-22 Housingwire.com
The market for commercial mortgage-backed securities (CMBS) experienced a rally last week following the issuance of new guidelines regarding acceptable loan modifications within real estate mortgage investment conduits (REMICs).
The total reach of the new rules may not go so deep, however, as to help some underwater borrowers, according to one research firm.
2009-09-21 housingwire.com
” At least another decade will pass before housing prices return to peak 2006 levels, according to an analyst at Moody’s Economy.com.”
2009-08-12 — housingwire.com
” ING Group posted a EUR 71m ($100.9m) profit in Q209 after three consecutive quarters of losses, despite a decrease in the value and performance of its residential mortgage-backed securities (RMBS) portfolio. “
2009-08-11 — wsj.com
2009-08-11 — blownmortgage.com
“Two reports out say if you’re thinking of buying, wait. The prices are going to continue to drop. The reason they offer are the same: Continuing increases in the number of homes worth less than their current mortgages.”
2009-08-11 — minyanville.com
“My vacation back to the US surprised and confounded many of my old friends: they know I moved back to park my wealth in dollars. Incredulously they asked how I could possibly not believe the US government, along with their crony partner the Federal Reserve, will not devalue the dollar to “settle” our debt with foreign lenders. A normal default (since we all know there is no way to possibly pay this debt back, nor is their enough capital in the world to buy our newly needed “financings”) isn’t palatable, they say, so the only direction for the dollar is down. I agree, but only in the long run. “
2009-08-10 — lewrockwell.com
2009-08-10 — nakedcapitalism.com
Today’s Financial Times highlights a possible target of regulatory action: bank overdraft fees. And those fees are not distributed the proverbial 80/20 pattern, with 20% of the accounts contributing 80% of the activity, but 90/10. And that 10%, not surprisingly, is in consumers with the lowest credit scores.
And not surprisingly, the biggest banks are the ones with the most aggressive fees.
2009-07-20 NakedCapitalism.com
“Readers may recall that during the heat of bailout battle, the Federal Reserve got into the fancy finance business, relying on the sort of deal structuring sometimes used to try to turn toxic odd pork scraps into barely-digestible sausage, the procedure used for pigs so dead that merely putting lipstick on them just won’t do.
The items in question are Maiden Lane, the vehicle used to backstop JP Morgan’s purchase Bear Stearns, and two sons of Maiden Lane created for dodgy AIG exposures. The bank was permitted to move some particularly fragrant collateral from Bear over to the Fed for a loan of $30 billion. The arrangement got reworked on the fly, and in the end, the Fed loan was reduced to roughly $29 billion as JP Morgan agreed to assume $1.15 billion of risk. The assets were placed in a holding company to be managed by BlackRock.”
It’s about time that people start asking the tough questions.
2009-07-20 Bloomberg.com
THIS IS NOT A MISPRINT.
“U.S. taxpayers may be on the hook for as much as $23.7 trillion to bolster the economy and bail out financial companies, said Neil Barofsky, special inspector general for the Treasury’s Troubled Asset Relief Program.
The Treasury’s $700 billion bank-investment program represents a fraction of all federal support to resuscitate the U.S. financial system, including $6.8 trillion in aid offered by the Federal Reserve, Barofsky said in a report released today.
“TARP has evolved into a program of unprecedented scope, scale and complexity,” Barofsky said in testimony prepared for a hearing tomorrow before the House Committee on Oversight and Government Reform.
Treasury spokesman Andrew Williams said the U.S. has spent less than $2 trillion so far and that Barofsky’s estimates are flawed because they don’t take into account assets that back those programs or fees charged to recoup some costs shouldered by taxpayers.
“These estimates of potential exposures do not provide a useful framework for evaluating the potential cost of these programs,” Williams said. “This estimate includes programs at their hypothetical maximum size, and it was never likely that the programs would be maxed out at the same time.”
2009-07-13 Housingwire.com
“After a review of 13 US residential mortgage-backed securities (RMBS) transactions, Standard and Poor’s lowered its ratings on 120 of the securities’ classes last week. The collateral backing the vintage 2005-2007 securities are primarily Alt-A, first-lien residential mortgages.”
2009-07-09 PrisonPlanet.com
“Congressman Ron Paul has vowed that he will not be stopped in his effort to audit the Federal Reserve, as he slammed Senate authorities for blocking the bill earlier this week.
Appearing on Fox News’ Freedom Watch with Judge Napolitano Paul referred to Senate authorities blocking Jim DeMint’s attempt to attach the legislation, which already has 250 co-sponsors in the House, as a provision to a spending bill as a “facade”.
2009-06-28 Mishs Global Economic Blog
In California, 175 hotels are in default — the first stage in the foreclosure process — according to a report from Atlas Hospitality Group, an Irvine-based brokerage firm. Another 31 have been foreclosed, nearly one third of them in the Inland region.
Of those in default or foreclosure, about 75 percent obtained new loans between 2005 and 2007 for construction financing, re-financing or to buy the hotel, according to the firm. Atlas Hospitality estimates that 2,500 hotels — about 25 percent of the state’s entire hotel population — refinanced or obtained new loans in that time meaning more defaults and foreclosures could be on the horizon.
2009-06-29 Denninger.net
“Mad props once again to Zerohedge who shone the bright light on Freddie’s latest screed. I’m not going to take from their discussion of The Fed buying up paper at what will (almost certainly) lead to ruinous losses – you can find that there. Rather, I am going to look at some of the internals from the document published that they didn’t focus on.”
2009-06-26 Forbes.com
China’s central bank renewed its call on Friday for the creation of a super-sovereign reserve currency to reduce the dollar’s global domination, which it said had worsened the financial crisis. In its annual financial stability report, the central bank did not mention the dollar by name but said it was a serious defect that one currency should tower over all others. “An international monetary system dominated by a single sovereign sovereign currency has intensified the concentration of risk and the spread of the crisis,” the People’s Bank of China said.
2009-06-26 Bloomburg:
In this Bloomberg segment Dr. Nouriel Roubini shares his thoughts on why pundits proclaiming the stabilization of the housing market are wrong and why the current policy path is unsustainable and likely to have a messy exit. My favorite part? The idea of our debt ballooning from 40% GDP to 80%. Lovely. Can you say bust?
2009-06-10 Dr Housing Bubble.com
If you want further proof how horrific these products are, take a look at how many of the Alt-A and pay Option ARM products originated with a second lien. That is, low down or nothing down fantasy buyers. In California, there are currently floating around 186,917 Alt-A mortgages with a second lien on them. You can rest assured that 90 to 99 percent of these loans will implode in the upcoming months. This is where your piggy back loans and 80-10-10 crap came about. I remember when zero down was a crazy way to suck in unknowing investors to thousand dollar seminars but it actually became a mainstream way to buy a home.
Before you even wonder how safe these loans are 41.6 percent of California Alt-A mortgage holders already have one late in the last 12 months! Keep in mind that most of this junk hasn’t even hit recast points and nearly half are already late with one payment:
Presented by Mike “Mish” Shedlock.
Mike “Mish” Shedlock is author of one of the most read economics blogs on the Internet: Mish’s Global Economic Trend Analysis http://globaleconomicanalysis.blogspot.com.
Mish gave an @Google talk, sharing his perspective on the state of the global economy (housing, the stock market, commodities, etc.) He also provides his interesting story about how he started blogging, and the impact that it has had on his life personally and professionally.
In January, Time.com ranked his site the #1 based on a rounded set of criteria http://www.time.com/time/business/article/0,8599,1873144-3,00.html. From the article:
“Although Mish is not an economist by training, he adroitly gets into the thick of economic data. Mish uses observations made by those in major media, so-called experts and government officials and serves up analysis based on his impression of their relevance and validity. The author is not afraid to attack conventional wisdom.”
2009-06-07 Kiplinger.com
A 27-year bull market in bonds is over and a brutal bear market is under way, says Tom Atteberry, co-manager of FPA New Income. That’s bad news for bond investors, particularly those holding Treasurys and municipal IOUs.
Atteberry, who spoke with us at the annual Morningstar Investment Conference in Chicago, says there is good reason to believe that the run-up in Treasury yields that began late last year will continue. Atteberry says he’s seeing anecdotal evidence that Chinese investors, huge holders of Treasurys, are beginning to sell their government-bond stakes. “They are very, very nervous” about the Federal Reserve purchasing Treasury debt because of the move’s potential for stoking inflation, one of the prime enemies of bond holders.
In the 1980s, Bolivia and much of Latin America went through a painful period of hyperinflation that brought the country to the brink of collapse.
2009-06-01 Wall Street Journal
“A hedge fund firm that reaped huge rewards betting against the market last year is about to open a fund premised on another wager: that the massive stimulus efforts of global governments will lead to hyperinflation. The firm, Universa Investments L.P., is known for its ties to gloomy investor Nassim Nicholas Taleb, author of the 2007 bestseller “The Black Swan,” which describes the impact of extreme events on the world and financial markets. ”
Fox News
2009-05-27 Ritzhold.com
” Searching for the housing bottom, with Barry Ritholtz, FusionIQ CEO and the Fast Money traders.”
www.Claytonhomes.com - Take a look what the “new mobile homes” look like. WOW!
They are also moving forward on the concept of a “green manufactured home”, see the link below.
http://www.treehugger.com/files/2009/01/clayton-ihome-design.php – When Warren Buffet bought Clayton Homes in 2003 I was still working in the prefab biz; Punching well above my weight, I sent him an email about the business case for a mobile home manufacturer doing well designed green housing. I don’t know if he got it; I never got an answer.
I feel this might revolutionize homes as we know it.
2009-04-23 Mish’s Global Economic blog
The Commercial Real Estate Time Bomb has gone off but it has been lost in the euphoria of economic cheerleading and bottom calls based on dubious (at best) earnings reports from banks. Here are a few headline items from the past week or so to consider.
Malls shedding stores at record pace
CNN Money is reporting Malls shedding stores at record pace
Strip malls, neighborhood centers and regional malls are losing stores at the fastest pace in at least a decade, as a spending slump forces retailers to trim down to stay afloat, according to a real estate industry report.
In just the first quarter of 2009, retail tenants at these centers have vacated 8.7 million square feet of commercial space, according to the latest report from New York-based real estate research firm Reis.
That number exceeds the 8.6 million square feet of retail space that was vacated in all of 2008.
Reis’ report shows that store vacancy rates at malls rose 9.5% in the first quarter, outpacing the 8.9% vacancy rate registered in all of 2008, and marking the largest single-quarter jump in vacancies since Reis began publishing quarterly figures in 1999.
2009-04-21 WallStreetJournal.com
It seems we are off to the races with the gov’t being the primary shareholder of bank interests. Good Lord, what’s next?
2009-04-11 Ritzhoild.com
Is That Recovery We See?
By John Mauldin
The market, we keep hearing and reading, is telling us that there is recovery around the corner. And pundits point to data that seems to suggest the worst is behind us. The leading economic indicators, while still down significantly, seem to be in the process of bottoming. There is a large amount of stimulus in the pipeline. Mark-to-market has been modified. Housing seems to be finding a bottom, if you look at the rise in sales from January. And so on.”
2009-04-09 ZeroHedge Blog
The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium — this wave is so big I would not put it past them trying it.
CA foreclosure background – in mid-2008 the foreclosure wave was artificially held back as a result of the CA law SB1137 enacted in Sept 2008. This also kept NOD’s and NTS’s at much lower levels than the actual defaults that were occurring. Other bubble states and several banks/servicers also went on random moratoria and the foreclosure wave was held back for the past six months. But just like so many other intervention and moratoria in the past, the problem just comes out the other side even more violent than if they would have done nothing. Adding insult to injury, the GSE’s announced this week that they were coming off moratorium, which could increase foreclosures by 20-25% alone.
EXCELLENT!
Must Watch!
Bill Moyers Journal
Sharing the Blame for the Economic Crisis?…
William K. Black, former senior bank regulator
3 parts
wow.
2009-04-02 Mishes Global Trends
The last words you want to see in an appropriations bill from Congress are the words “in case of an emergency” or their twin sister “in the event of extraordinary circumstances“.
When you see those words it is a near certainty that an “emergency” or that “extraordinary circumstances” are right around the corner.
So, we are on the blue continuum. It appears that it almost matches the 30’s Depressionary numbers. I feel we will see another deep, dark drop shortly. The current upswing has very little bering on the condition of the full economy.
Full Size Chart here: http://dshort.com/charts/bears/four-bears-large.gif
Excellent explanation of what happened between 2001 and today. I caught a glimpse of CNBC’s documentary on the financial crisis called “House of Cards” just now and I highly recommend anyone who’s interested on how we got ourselves into such trouble to watch it.
From what I’ve seen, it at least explains:
The show, House of Cards, is going to be on CNBC and premiers tonight (2/12/2009) at 8:00pm ET and 12:00am ET.
Or you can view this entire special online here:
http://www.hulu.com/watch/59026/cnbc-originals-house-of-cards
2009-02-19 — crisisofcredit.com
2009-02-18 – WSJ.com
Homeowner Affordability and Stability Plan
Executive Summary
The deep contraction in the economy and in the housing market has created devastating consequences for homeowners and communities throughout the country.
· Millions of responsible families who make their monthly payments and fulfill their obligations have seen their property values fall, and are now unable to refinance at lower mortgage rates.
· Millions of workers have lost their jobs or had their hours cut back, are now struggling to stay current on their mortgage payments – with nearly 6 million households facing possible foreclosure.
· Neighborhoods are struggling, as each foreclosed home reduces nearby property values by as much as 9 percent.
1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affortdable
2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners
3. Supporting Low Mortgage Rages by Strengthening Confidence in Fannie Mae and Freddie Mac.
The Homeowner Affordability and Stability Plan is part of the President’s broad, comprehensive strategy to get the economy back on track. The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs. The key components of the Homeowner Affordability and Stability Plan are:
2009-02-17 – Ritzhold.com
“Beyond the $700 billion bailout known as TARP, which has been used to prop up banks and car companies, the government has created an array of other programs to provide support to the struggling financial system. Through Feb. 10, the government has made commitments of nearly $8.8 trillion and spent $2 trillion. Here is an overview, organized by the role the government has assumed in each case.”
2008-17-08 - NYTimes.com
“President Obama has not ruled out a second stimulus package, his press secretary, Robert Gibbs, said on Tuesday, just before Mr. Obama signed his $787 billion recovery package into law with a statement that it would “set our economy on a firmer foundation.”
2009-01-25 – calculatedriskblog.com
“In many ways the UK looks more like the US than Iceland: a housing and mortgage boom that got out of control; excessive borrowing (mortgage debt, credit cards, auto loans, etc.) and low savings by households; a large and rising current account deficit driven by the consumption boom (and private savings fall) and the real estate investment boom; an overvalued exchange rate; an over-bloated financial system that took excessive risks; a light-touch regulation and supervision system that failed to control the financial excesses; and now an ugly financial and economic crisis as the housing and credit boom turns into a bust. This will be the worst financial crisis and recession in the UK in the last few decades.”
2009-01-26- Housingdoom.com
This infuriates me… “There has been a “foreclosure prevention” idea that has been kicked around for awhile now. It is to allow bankruptcy judges to alter mortgage loan terms and even to reduce a borrower’s principal balance. I have not seen a short, concise name for this suggested mortgage “cram down” program so I would like to suggest one of my own”
Paul Volcker is “the last honest guy” in the world, according to one of the foremost critics of the financial industry, Martin Mayer. Volcker was the guy who beat inflation in the early 1980s by raising interest rates as high as 18%. He also warned against the repeal of Glass-Steagall and many other excesses of our financial economy.
Another heavy hitter is Domingo Cavallo, the guy who beat inflation in Argentina by pushing through the currency board regime that took monetary policy out of the hands of the Argentine authorities.
But you’re right that others in this Group of 30 were indeed present at the scene of the crime. The signature right next to Volcker’s on the report is Jacob Frenkel’s, the vice chairman of AIG. Excerpts from the report are below. ————–
“All systemically significant financial institutions, regardless of type, must be subject to an appropriate degree of prudential oversight.” [this would include investment banks and insurers]
“Large, systemically important banking institutions should be restricted in undertaking proprietary activities that present particularly high risks and serious conflicts of interest…” [Prop trading should be outlawed entirely for commercial banks. They've got their hands full just measuring the credit risk of their loan books.]
“To guard against excessive concentration in national banking systems…limits on deposit concentration should be considered at a level appropriate to individual countries.” [Too bad the government's chosen method for resolving failed banks is to kick their assets upstairs to a bigger balance sheet, concentrating deposits even more. E.g. B of A---Countrywide, JPM---WaMu and Wells Fargo---Wachovia.]
etc, etc…. see the reports below.
2009-01-08 — ml-implode.com
“It is obvious that these loan modification plans have been born as a result of panic and the need to protect the bank’s balance sheets rather than doing what is beneficial for the home owner and broader housing market.”
2009-01-08 — bloomberg.com
“We’re creating a shadow inventory of homes that will be right back on the market as soon as the economy and the housing market begin to improve,” said Stiglitz, a Columbia University professor of economics. “We could see a double-dip in the housing recession if that happens.”
………………..
“In past housing recessions, we didn’t see as many mortgages under water, so it didn’t matter if the focus was on speed and not on maximizing value,” Stiglitz said. “Now, the same banks that created the problems by mismanaging their risk are mismanaging the disposal of their assets.”
The government’s attempt to spend (read borrow) our way out of this situation may lead to a total collapse of the dollar.
The Fed meeting minutes released today sure paint a picture of a Federal Reserve with very little regard for how to unwind these measures or what the long term consequences could be. I think a collapse in dollar assets is a very real concern after years of being considered nearly lunatic fringe talk.
Willem Buiter wrote a great piece on this.
Analysis of Destroying the Dollar
Among other unpleasant observations, Peter calls the U.S. a banana republic and mocks the Fed with ‘the idea’ of exporting prosperity via printing endless money (debt) to the rest of the world!
This should be a real thrill for those of us that want to see the money masters face that we know the truth about our multi-fractional reserve ponzi scheme banking system.
2009-01-03 — ml-implode.com
”As as has been argued here previously, Schumpeter was right: creative destruction is necessary for a capitalist economy to thrive. The business cycle can’t be inflated into oblivion. In attempting that during his years at the Fed, Greenspan allowed financials to grow too large. Now they have to fail, but they can’t be allowed to. In Bernstein’s words: there’s too much debt, but reducing it “quickly” will “bring down the whole system.” Presumably the only solution is to bring it down slowly. That may just happen if we’re lucky. Despite the government’s efforts to reflate the debt bubble, it is deflating as banks deleverage. My personal belief is we won’t be lucky. The stupendous growth of U.S. liabilities, via bailouts and the Fed’s growing balance sheet, will lead to a large fall in the value of the dollar. A view I think Bernstein shares…”
2008-12-29 – NY Times
“We got into this mess to a considerable extent by overborrowing,” said Martin N. Baily, a chairman of the Council of Economic Advisers under President Clinton and now a fellow at the Brookings Institution. “Now, we’re saying, ‘Well, O.K., let’s just borrow a bunch more, and that will help us get out of this mess.’ It’s like a drunk who says, ‘Give me a bottle of Scotch, and then I’ll be O.K. and I won’t have to drink anymore.’ Eventually, we have to get off this binge of borrowing.”
Mishes Global Economic Trends Blog -
The state of New Jersey is insolvent. Bankrupt might be a better word. New Jersey is $60 billion in the hole on pension funding and the Governor is planning on skipping payments in a “pension payment holiday” until 2012 so as to not increase property taxes. To top it off, the ongoing plan assumptions are 8.25%. Sorry NJ, that simply is not going to happen. ….
Inquiring minds are now reading that Goldman Draws Ire for Advising Default Swaps Against New Jersey.
Goldman Sachs Group Inc., one of the top five U.S. municipal bond underwriters, is angering politicians and public-finance officials in New Jersey, Wisconsin, California and Florida by recommending that investors purchase credit-default swaps to bet against 11 states’ debt.
Bets against public debt, once unheard of on bonds considered safe enough for retirees, have soared as the National Conference of State Legislatures projects recession-fueled budget crises will cause $97 billion of shortfalls nationwide over the next 18 to 24 months.
This is a difficult one to wrap my head around. But the idea that they are trying to create a different class of debt is very troubling. The resulting confusion can’t be good for investors who were fooled by GSE AAA ratings based on “implicit” guarantees.
__________________________________
Move Presents Challenges: ‘Very Close Cousins to Existing Treasury Bills’
By JON HILSENRATH and DAMIAN PALETTA – Wall Street Journal
The Federal Reserve is considering issuing its own debt for the first time, a move that would give the central bank additional flexibility as it tries to stabilize rocky financial markets.
Government debt issuance is largely the province of the Treasury Department, and the Fed already can print as much money as it wants. But as the credit crisis drags on and the economy suffers from recession, Fed officials are looking broadly for new financial tools.
Fed officials have approached Congress about the concept, which could include issuing bills or some other form of debt, according to people familiar with the matter.
It isn’t known whether these preliminary discussions will result in a formal proposal or Fed action. One hurdle: The Federal Reserve Act doesn’t explicitly permit the Fed to issue notes beyond currency.
2008-12-02 - Optionamrageddon.com
If you want to understand de-leveraging, you could do worse than Meredith Whitney’s op-ed in yesterday’s Financial Times. She noted that $3 trillion of credit had been “expunged” from the economy so far this year. She also said credit card lines could be substantially reduced:
“I estimate that the mortgage market will shrink for the first time in US history and that the credit card market will be 18 months behind it. While just over 70 per cent of US households have access to credit cards, 90 per cent of these people use credit cards as a cash-flow management vehicle, or revolve payments at least once a year. While the credit card market is small relative to the mortgage market, it has grown to play a key role in consumer liquidity. Declining liquidity here will have disastrous effects on consumer spending and the economy. My primary concern is preserving liquidity to consumers, who command more than two-thirds of gross domestic product,” said, Whitney.
I sure wish some of the foolish talking heads on our televisions could be held accountable for misinformation. But hey, it is the news, since when have we pushed for accuracy. Peter Shiff has tried and tried to speak to the masses about the upcoming crisis and the true net effects it could have on the entire economy. But instead of listening, it was easier to laugh and ridicule. Watch the video for yourself.
by 11-13-08
If you think this weekend’s G-20 meetings in Washington are only about designing short-term fixes to the financial system and regulatory reforms for banks, hedge funds, brokers, mortgage companies and investment banks … think again.
Behind the scenes, a far more fundamental fix is being discussed — the possible revaluation of gold and the birth of an entirely new monetary system.
I’ve been studying this issue in great depth, all my life. And given the speed at which the financial crisis is unfolding, I would be very surprised if what I’m about to tell you now is not on the G-20 table this weekend.
Furthermore, I believe the end result will make my $2,270 price target for gold look conservative, to say the least. You’ll see why in a minute.
First, the G-20’s motive for a new monetary system: It’s driven by and based upon this very simple proposition …
“If we can’t print money fast enough to fend off another deflationary Great Depression, then let’s change the value of the money.”
I call it … “The G-20’s Secret Debt Solution”
Peter Schiff, president of Euro Pacific Capital Inc. and disciple of Austrian School economics, says “a major, major crisis is coming,” thanks to the government’s attempts to ‘fix’ the economy with giant bailouts.
Well, he’s been right so far
thetruthaboutmortgage.com
While the problem can be seen nationwide, a handful of states are taking the brunt of it, including Arizona, California, Florida, Georgia, Michigan, Nevada, and Ohio.
These seven states account for 58 percent of all underwater borrowers, but just 36 percent of outstanding mortgages.
22 States Face Tax Shortfalls, Frugality To Hit State Budgets
The moribund economy is drying up tax revenues more dramatically than expected, forcing 22 states, including California, to confront growing budget gaps. Some states have already eliminated jobs and services — and more cuts are likely.
The new shortfalls — totaling at least $11.2 billion — come just months after numerous states enacted belt-tightening measures while writing their yearly budgets. Officials also adjusted their revenue projections downward to account for the slowing economy. But in many cases, the actual revenue for the first quarter of the fiscal year, which began July 1, has proven to be even lower.
“States have been confronted with bad economic circumstances in the past, but never so many states, all at once,” said William T. Pound, executive director of the National Conference of State Legislatures.
The revenue pools are shrinking for a number of reasons: Rising layoffs are cutting into payroll taxes. The credit crisis and housing slump are affecting taxes levied on real estate deals. Sales taxes are shrinking as shoppers worried about the economy stay home.
Dow jumps 936 points and S&P up 104, in the biggest point gains ever. The Dow, S&P and Nasdaq all gain over 11%.
NEW YORK (CNNMoney.com) — Stocks rallied Monday afternoon, with the Dow rallying 976 points during the session, as investors bet that the worst of the credit crisis is over, following a series of global initiatives announced over the last few days.
The Dow Jones industrial average (INDU) ended 936 points higher, after having risen as much as 976 points during the session. The advance was the largest ever during a session on a point basis. The point gain was equal to 11.1%, the best one-day percentage gain since Sept. 1932 and the fifth-best ever.
Bernanke: Economic outlook weaker
Fed chairman says financial crisis will dampen economy well into 2009 and hints at future rate cuts; says recent actions by Fed, Treasury should help economy recover.
In a speech before the National Association of Business Economics in Washington on Tuesday, Bernanke said the threat of inflation has receded recently, while the economy has continued to weaken. This could be interpreted as a sign that the central bank might be preparing to lower its key fed funds rate soon.
“Overall, the combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased,” he said.
Federal Reserve to buy loans crucial to business to unfreeze markets.
NEW YORK (CNNMoney.com) — The Federal Reserve announced a new program to help the battered market for short-term business loans – taking its closest step yet to lending directly to businesses.
The program addresses commercial paper, a form of short-term funding that is crucial to many businesses operations.
Commercial paper is sold by major corporations and most of the nation’s leading financial institutions. They use the proceeds to fund day-to-day business operations. It is bought primarily by money market fund managers and other institutional investors.
Before the current credit crisis, there was nearly $2 trillion of commercial paper outstanding and was mostly issued for short terms – never more than nine months – and thus had to be renewed frequently.
The Economist’s poll of economists
Oct 2nd 2008 | WASHINGTON, DC
From The Economist print edition
In our special report on the election we analyse the two candidates’ economic plans. Here, we ask professional economists to give us their views.
Full Report Here - 20+ Page Analysis
2008-10-03 — ml-implode.com
No updated media stories yet; but just confirmed this live on TV. Our worst fears confirmed — what could have been just an ugly downturn will now probably be a lengthy depression and in many ways, the final nail in the coffin for a sovereign United States. Let’s hope something good comes of this money.
Update: Here’s a news article.
Update 2: The market barely paused on the way down after the bill passage; as I write this the Dow has reversed course over 200 points to the downside.
Update 3: Minyanville has reprinted comments from Mr. Practical from back in March which we think are worth re-reading in light of the latest bailout attempt:
…. when government grows too big and through its hubris believes its bureaucracy knows more than the market, the seeds of eventual deflation are sewn… I’m talking about direct intervention in the supply of credit to “ensure price stability.” That lie is due to the political refusal to allow the market to tighten.
The problem becomes worse when big government aligns itself with big business (the extinction of entrepreneurs) to affect the natural self-correction processes of the market.
Years of debt accumulation aren’t cured by a 5% correction in stocks, as Wall Street would have you believe. A major debt correction — one that the market has been trying to accomplish for years but which has been rejected time and time again by Fed policy — is necessary to correct the huge imbalances that exist. To deny the necessity of this eventuality is, of course, human.
Total US debt is now 3.6 times GDP and continues to grow. But new debt is less and less effective in driving economic growth: More income is going to service that debt and less to creating production, the stuff that generates income.
In 1929, US debt was 2.9 times – the second highest it’s ever been. Despite Mr. Bernanke’s false recollections of Fed actions back then, they created an immense amount of liquidity (credit) trying to cure the stock market crash. The market did rally temporarily as a result, then slowly crashed to deeper lows, since that new credit just went to short-term speculation in stocks. The new money did no real good, because there was already too much capacity, so the credit never went to creating production.
Derivatives market faces biggest test 2008-10-03 — ft.com
The $54,000bn credit derivatives market faces its biggest test in October as billions of dollars worth of contracts on now-defaulted derivatives on Fannie Mae, Freddie Mac, Lehman Brothers and Washington Mutual are settled. It’s notable that the credit derivatives market has been the source of not a sudden implosion, but something of a slow and steady fizzle. It turns out that the very non-standard, and non-exchange-traded properties of derivatives that has been so worrisome actually keeps things from happening too suddenly. So that is a good thing. However, it does not eliminate the ultimate need of most participants to take losses — and it is bad in the sense that it drags the “crisis” on for longer.
2008-09-26 — blogspot.com
Welcome to the credit market, folks, it is officially closed.
After Lehman, Fannie Mae (FNM), Freddie Mac(FRE), AIG (AIG) and Washington Mutual (WM) debt and preferred holders have been unmercifully tossed under the bus so
Jamie Dimon can be given banks, do you really think many want to get in front of this train wreck.Me thinks not.
- For what it’s worth, I was just offered Wachovia (WB) 5.8% hybrids at $0.10 on the dollar, and I passed. A block of 30-year Wachovia paper just traded at $0.35 on the dollar. This is not preferred stock or hybrid, folks, this is subordinated debt.
- Washington Mutual sub paper? $0.01 on the dollar. This is what a credit rout looks like. And until this ship is righted, watch out. There are others trading similarly, like Morgan Stanley (MS) and, while I have no positions, it’s quite interesting to watch.
- So the few that can raise capital, like JPMorgan (JPM) and Goldman Sachs (GS) will survive, but many failures lie directly in front of us.
- Many regional banks are likely next.
2008-09-24 — bloomberg.com
Shelby told reporters yesterday that “I think the secretary now realizes that what he sent up is not just going to be rubber- stamped.”
Paulson said it would be a “grave mistake” to adopt Schumer’s proposal because it sent the wrong signal to the market and didn’t give Treasury “the tools to do the job.”
Leaders in both parties are working to shore up support for an effort to restore investor confidence. They also want to limit the risks for lawmakers who are being asked to vote on the biggest government intervention in the financial markets since the Great Depression, just six weeks before the elections.
The London Telegraph, Wed 24th of September
The US taxpayer bail-out of America’s banking sector is an event whose significance will reverberate for many years. What it means for free markets, for the way Western economies are run, for the prosperity of the world economy, must remain to be seen.
When Treasury Secretary Hank Paulson announced that the world’s biggest economy was about to embark on the world’s biggest bail-out for its financial sector, the first concern economists had was about the long-term prospects for the nation’s finances and its currency.
2008-09-24 — ml-implode.com
”But does this really solve our economic problems or make them worse? Ben and Hank are just offering us a low-rate balance transfer and higher credit limit on a new card. And boy are they getting a low introductory rate as yields on new Treasuries have fallen near 0%. Happy days are here again! We can keep borrowing, which means we can keep spending!”
2008-09-19 — thetruthaboutmortgage.com
”So the AARP released a “first-of-its-kind” study that reveals older homeowners are not exempt from the ongoing mortgage crisis, significant considering the home is a nest egg for most.”
2008-09-19 — cnbc.com
”Even the insiders I’m talking to, who know far more than I do, and who will be at the table, are answering my questions with: “Honestly, I’m just not sure.”
We pay taxes – and not on our “profits” mind you – We pay taxes on the money we use to buy food, fuel, clothes for our kids, and everything else we have to fork out to get by every month. They want Us to pay for it. When I think about that I forget to breath for a minute. The don’t just want us to pay for it, they are making us pay for it, and we will pay for generations to come.
Paulson and Bernanke are asking for a Blank Check to bailout people who had profited from the lax oversight and underwriting for years – and Pelosi Purse-strings has pledged to roll over on anything and push a bill through hastily, so they can all go home for a long vacation. Congress probably will not even read it. You know they are not writing it, they will leave that to the lawyers and Corporate Lobbyists – you know, the “Experts.”
Get ready for the massive dumping of assets on our market, specifically residential properties. Lehman and Merrill are massively dumping inventory. Banks are in the liquidation mode. When this supply hits, it will drive down prices. Home sales ARE increasing, but so is inventory, and the rate of these increases do not offset each other. Expect more inventory and decreasing demand as loans become nearly impossible to obtain. This will only prolong the housing downturn. The foreclosure market is now the real estate market, and the banks are now the market makers.
The Paradigm Shift: “Too Big to Bail Out”
Posted on September 15th, 2008 in Daily Mortgage/Housing News – The Real Story, Mr Mortgage’s Personal Opinions/Research
A paradigm shift back to ‘normal’ maybe occurring. Tonight sure looked like .gov is viewing these events as ’too big to bail out’. That is more than a shift, that is a full 180.
‘Maybe its different this time’ was perhaps the past two decades of free money and ultimate leverage. Now, its time for some harsh reality.
It looks like tonight that .gov decided to protect its balance sheet just like the banks have done for the past year. It is every bank for themselves. The Gov’t threw its balance sheet at the GSE’s just two weeks ago and here we sit. Nobody, and I mean nobody is prepared for this. And Nobody, and I mean nobody may be able to stop it.
Lehman files for bankruptcy. Merrill is bought by Bank of America. The Fed and major banks expand lending. Anxiety lingers. Will WaMu get bought by JP Morgan? What are the implications of this shrinking market and what will it to do our lending capacity?
Here we go…This was bound to happen when the Feds said “no” to further bailouts.
2008-08-26 — forbes.com
When the nation’s politicians take the stage in Denver and St. Paul, Minn., you’ll hear a lot of talk about saving the decrepit housing market, and lately that means one thing: The Federal Housing Administration.
Watch your wallet.
“Nobody is talking about it, but in three years the FHA bailout is going to cost taxpayers at least $100 billion dollars,” said Guy Cecala, a mortgage industry insider and publisher of Inside Mortgage Finance. “Everybody on Capital Hill recognizes that there will be significant costs, but they’re trying to keep the housing spigot open even if it will bring in some bad water down the road.”
From Bloomberg.com Aug 18, 2008
The worst is yet to come in the U.S.,” Rogoff, a Harvard University professor of economics, said in an interview in Singapore today. “The financial sector needs to shrink; I don’t think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.
This story is amazing. In 2007, during the time in which subprime lenders were collapsing and defaults soaring, Merrill was packaging up and selling $30 billion in rotten CDO’s and selling them as fast as they could.
Everyone already knows about the Merrill 5.47 cents on the dollar CDO deal that just went down. In case you missed it her e is the link.
Now, of course, many are coming out saying ‘but but but that was for the worst of the worst CDO’s’ and ‘but but but, 2005 vintages were not as strong as recent vintages’.
That is not the truth. The truth is that Merrill’s marks are very similar to National Australia Banks write-down earlier this week and other banks with similar holdings will likely have to write down their holdings similarly. Meredith Whitney said the same today in her interview on CNBC. It was great….
Forbes, July 30, 2008
Guess who holds your mortgage now? It’s your friendly neighborhood hedge fund.
Dozens of hedge funds, private equity groups and other investors have plunged into the beaten-down mortgage market in recent months, buying tens of thousands of distressed loans and foreclosed properties around the country. They hope to profit from the woes of banks and other investors holding mortgages that have plummeted in value as home values sink and defaults soar.
“(The title of this story may be misleading because they have they do have ‘options’ if you are speaking in terms of $10s of billions in Pay Option ARMs. See spreadsheets below.)” WaMu stock price keeps falling. From $40 per share less than a year ago to $20 four months ago to $3.03 a couple of weeks back before the SEC and Treasury ganged up to prop up the markets yet again.
Keep in mind earlier this week WAMU’s Treasurer Robert Williams in an interview with the New York Post said “The banks raising of more than $7bn from TPG has made borrowing from the Federal Reserve’s short-term borrowing window unnecessary.” Did he change his mind literally the next day as WaMu admitted that part of the extra $10 billion cushion absolutely came from Fed Short-Term borrowing window?
A little dated ( May, 2008 ) but still very relevant. We are destroying our country and our financial well-being. Everything is inter-connected. We are going BROKE and are headed for the 1970’s style “stagflation” when the FEDs have no more bullets to shoot out the problems! Our dollar is tumbling fast each day. An interesting piece from Glen Beck:
July 7, 2008
Outstanding downloadable report with very interesting data. Harvard’s “The State of the Nation’s Housing 2008″ Report.
The study presents a dispiriting picture of how severe and structurally ingrained housing affordability challenges have become. By 2006, 17.7 million households—about 15.8 percent of all households—were spending more than half their income on housing, an increase of 3.8 million just since 2001. Even 34 percent of households with incomes equivalent to 1-2 times the federal minimum wage, and 15 percent with incomes equivalent to 2-3 times this wage, spend more than half their incomes on housing. With the economy spinning out a growing proportion of full and part-time jobs with wages in these ranges, prospects for a meaningful reduction in affordability problems remain dim.
This year’s State of the Nation’s Housing report finds that demand for new homes has dropped well below projected long run demand. House price deflation, tight credit, and consumer concerns over the direction of the economy have kept buyers at bay and some households from forming. The somber conclusion is that if the economy slips into recession or job losses keep racking up, household growth and homeownership demand could fall even more.
July 7, 2008 – http://market-ticker.denninger.net/
“If Congress again opens up banking to Wall Street speculation, as it opened up S&Ls and banks to real estate speculation, regulators will quickly lose control over the complex series of events that a pervasive marketplace will immediately set in motion. Insider abuse, self-dealing, and back scratching relationships between institutions will run rampant.
Posted on June 9th, 2008 in Mr Mortgage’s Personal Opinions/Research
If you look at the time-line of events surrounding the Bear Stearns collapse and subsequent brokers earnings, it is obvious that the lies of the brokers, not only saved them personally, but were pivotal in changing market sentiment and dynamics leading to a multi-month rally, led by financial stocks.
Lehman was first scheduled to release earnings following the Bear Stearns implosion in March. If they would have shown a loss, like they did today, it could have meant the end of Lehman.
NEW YORK (CNNMoney.com) — Oil prices shot up nearly $11 a barrel and settled Friday at a record $138.54 on geopolitical jitters, a dollar decline and a forecast that oil would hit $150 by July 4.
Friday’s spike in the July contract for light crude on the New York Mercantile Exchange marks the largest singe-day increase in oil prices on record. The contract hit an intraday record of $139.12, breaking the previous trading record of $135.09.
Biggest jobless jump since ‘86 — Wall Street sinks 400 pts
2008-06-06 — yahoo.com – The government said the number of unemployed people grew by 861,000 in May — rising to 8.5 million. The over-the-month jump in unemployment reflected more workers losing their jobs as well as an increase in those coming into the job market — especially younger people — to look for work, the Bureau of Labor Statistics said. A year ago, the number of unemployed stood at 6.9 million and the jobless rate was 4.5 percent.
This is how you get prime walkaways.
The question everyone in real estate and the broader capital markets in the United States has been asking since August 2007 is, How do we get out of this mess? Not only how, but what actually is this mess and where could it lead our country? This is a great article.
The combination of severely negative real interest rates and inflationary pressure forced people away from fundamental investing and savings into all forms of highly leveraged speculation. The real estate bubble was one consequence, but it was really just part of a much larger bubble in leveraged finance and speculation in all asset markets, from LBOs to commodities to hedge funds.
Just a few moments ago, we announced that Ken Thompson is retiring as chief executive officer at the request of the board of directors and that I will be assuming his duties on an interim basis. I will be working closely with Ben Jenkins, vice chairman and president of the General Bank/Wealth Management, who will serve as interim chief operating officer.
All of the company’s staff functions — Finance, Marketing, Human Resources and Corporate Relations, Operations and Technology, Risk Management, Legal and Audit — will report to me. The General Bank, Wealth Management, the Corporate and Investment Bank and Capital Management will report to Ben.
The board took this action only after careful and thorough deliberation and in accordance with our responsibility for the strategic direction of the company. Over the past few weeks, as we continued to look at all the facts, cumulatively, we determined that in order to move forward Wachovia required new leadership at the top. A change in chairman was not enough.
I’m sure this news is very difficult for many of you who have worked closely with Ken over the years. He has earned the respect of his colleagues and peers, and he will be greatly missed. I hope you will join me in thanking him for his 32 years of service and in wishing him well.
Equally, I hope you will join me in the hard work that will be required of each of us as we guide our company through an especially challenging economic and operational period. The best news that I have to share today is no news at all to most of you: We have assembled one of the finest operating teams in the business. I have complete confidence that we are equipped to meet the full range of challenges that face us during this transitional period and beyond.
I encourage you to read the news release from this morning’s announcement (below), to watch today’s Take 5 show – which is airing on the satellite network and will be delivered to desktop users during the afternoon – and to tune in to a special message from me airing on V-Net beginning at 3 p.m. today Eastern time (it will be delivered via desktop video on Tuesday).
I would like to emphasize that our mission today is no different than it was last week or will be going forward: to deliver value for our shareholders and to provide exceptional service to our customers. Each day, the contributions of a 120,000-member Wachovia family are what make that mission possible.
Both hard work and great opportunities stand before us, and I know that in this company we have the determination to succeed in achieving both. Thank you.
Nouriel Roubini is a Professor of Economics and International Business, Stern School of Business New York University. Here is a recent interview from Financial Times with Professor Nouriel Roubini in three separate parts. Bleak is good word.
PART 1
PART 2
PART 3
Ben Bernanke & Co. lower 2008 economic growth forecast and raise their projections for inflation and unemployment; says last rate cut was a “close call.”
NEW YORK (CNNMoney.com) — The Federal Reserve sees worse economic problems ahead, according to new forecasts from the central bank released Wednesday.
Maybe because these numbers are based on terrible data, skewed numbers, and manipulated indicators…
Well, it seems Bank of America might be “reconsidering” the merger/ buy out of Countrywide Financial. Maybe Bear Stearns’ “pennies on the dollar” sale earlier set the stage for what’s to come. How can you put a dollar amount on the volume of bad loans Bank of America would have to cover if the buy-out actually went through? I do know this could be a make-or-break for one of America’s largest banks in one of the most difficult times ever for banks. I felt before and I feel now, BofA bit off more than they could chew…
“At least two analysts said Bank of America Corp (BAC) will likely lower its purchase price for Countrywide Financial Corp (CFC), with Friedman, Billings Ramsey analyst saying the bank may bring down its deal price to the $0 to $2 level or completely walk away from the deal.”
2008-04-23 — nytimes.com original article
“Two key questions are whether the credit agencies — which benefit from a unique series of government charters — enjoy too much official protection and whether their judgment was tainted. Presumably to forestall criticism and possible legislation, Moody’s and S.&P. have announced reforms. But they reject the notion that they should have been more vigilant. Instead, they lay the blame on the mortgage holders who turned out to be deadbeats, many of whom lied to obtain their loans.”
In all seriousness, I wonder how the ratings agencies explain the fact that their risk-assessment metrics (like FICO) have broadly failed.
Here is a snippett of the fascinating recounting of how it all got started:
The Securities and Exchange Commission, faced with the question of how to measure the capital of broker-dealers, decided to penalize brokers for holding bonds that were less than investment-grade (the term applies to Moody’s 10 top grades). This prompted a question: investment grade according to whom? The S.E.C. opted to create a new category of officially designated rating agencies, and grandfathered the big three — S.&P., Moody’s and Fitch. In effect, the government outsourced its regulatory function to three for-profit companies.
What could possibly go wrong, eh?
